NYMEX 10-07447-BC, NYMEX 11-08456-BC and NYMEX 11-08665-BC
BNP Paribas Prime Brokerage, Inc.
NYMEX RULE VIOLATIONS:
854. CONCURRENT LONG AND SHORT POSITIONS
Set forth below are the procedures that must be followed for concurrent long and short positions and hold-open accounts.
A. Concurrent long and short positions in the same commodity and month may be held by a clearing member at the direction of a customer or on behalf of an omnibus account; however it shall be the duty of the clearing member to ascertain whether such positions are intended for offset or to be held open prior to final transmission of position data to the Clearing House.
B. Concurrent long and short positions in physically delivered contracts that are held by the same owner during the current delivery month must be offset by transactions executed in the market, by allowable privately negotiated transactions, or fulfilled through the normal delivery process, provided however that trades may be transferred for offset if the trade date of the position being transferred is the same as the transfer date. Such positions may not be offset via netting, transfer, or position adjustment except to correct a bona fide clerical or operational error on the day the error is identified and provided that the quantity of the offset does not represent more than one percent of the reported open interest in the affected futures contract month. For the purposes of this rule, the current delivery month for energy futures contracts commences on the open of trading on the third business day prior to the termination of the respective futures contract, including the termination date. The current delivery month for metals futures commences two business days prior to the first business day of the delivery month.
C. Clearing members which, pursuant to this rule, carry concurrent long and short positions, must report to the Clearing House both sides as open positions. When either side or both sides are reduced in accordance with Section B. of this rule, the open positions as reported to the Clearing House must be reduced accordingly.
D. The Exchange takes no position regarding the internal bookkeeping procedures of its clearing members which, for the convenience of a customer, may "hold open" a position only on their books. However, the clearing member must accurately report to the Exchange and the Clearing House, as appropriate, large trader positions, long positions eligible for delivery and open interest.
716. DUTIES OF CLEARING MEMBERS
Prior to the last day of trading in a physically delivered contract, each clearing member shall be responsible for assessing the account owner’s ability to make or take delivery for each account on its books with open positions in the expiring contract. Absent satisfactory information from the account owner, the clearing member is responsible for ensuring that the open positions are liquidated in an orderly manner prior to the expiration of trading.
770. DELIVERY OFFSET PROCEDURES
A clearing member who, as the result of an error, omission or outtrade discovered on or after the last day of trading, carries a position in a contract which has expired and for which the position holder is unable to fulfill the obligation to make or take physical delivery in that contract may, with the consent of the account owner(s) or controller(s), request to offset such position against an opposite position held by an account with different beneficial ownership through a trade transfer; provided, however, that the parties to an error or outtrade must exercise the utmost diligence to resolve the error or outtrade.
Delivery offset requests must be made to the Clearing House. Trade transfers pursuant to this Rule require that the Clearing House receive acceptance from an account(s) with different beneficial ownership and confirmation of the agreed upon transfer by the party initiating the request. Such confirmation must be submitted in writing on the form specified by the Clearing House All positions transferred pursuant to this Rule shall take place at the final settlement price of the contract.
Clearing member firms representing accounts that have transferred a trade pursuant to this Rule must correctly report the change in open interest to the Clearing House pursuant to the schedule established by the Exchange.
In the event a delivery offset request does not result in a trade transfer, delivery shall take place as required under Exchange rules.
Nothing in this Rule relieves a clearing member of its responsibilities with respect to open positions in an expiring contract month in a physically delivered contract as set forth in Rule 716.
Pursuant to an offer of settlement in which BNP Paribas Prime Brokerage, Inc. (“BNPP”) presented at a hearing on April 12, 2012, in which BNPP neither admitted nor denied the rule violations upon which the penalty is based, a Panel of the NYMEX Business Conduct Committee (“Panel”) found that for the time period of May 2010 through July 2011, BNPP overstated open interest during the current delivery month in the physically delivered Light Sweet Crude Oil futures contract on five (5) occasions, the physically delivered Heating Oil futures contract on two (2) occasions and the physically delivered Reformulated Blendstock for Oxygenate Blending (“RBOB”) Gasoline futures contract on one (1) occasion. For purposes of NYMEX Rule 854, the current delivery month for energy futures contracts commences on the open of trading on the third business day prior to the termination of the respective futures contract, including the termination date. Accordingly, these eight (8) misreporting violations violated NYMEX Rule 854.
The Panel further found that on July 29, 2011 and November 30, 2011, BNPP failed to ensure that open positions held on its books in the physically delivered Heating Oil futures contract were liquidated in an orderly manner prior to the expiration of trading and complied with delivery offset procedures. The Panel found that in so doing, BNPP violated NYMEX Rule 716 and Rule 770.
In accordance with the settlement offer, the Panel ordered BNPP to pay a fine to the Exchange in the amount of $210,000.
In levying this penalty, the Panel considered significant steps BNPP has taken since January 2012 to enhance its delivery and position reporting practices. For example, BNPP established a Task Force committee comprised of senior level management from various departments within BNPP to conduct a comprehensive managerial review of the delivery and position processes; retained a consulting firm to conduct an internal review of BNPP’s delivery and reporting practices; retained several of its consultants to work with BNPP on-site to ensure that the implementation of the remedial measures are carried out; developed comprehensive written procedures regarding escalation and communication of relevant issues among Operations, Management and Compliance; conducted mandatory training to Front Office and Operations staff focusing on regulatory compliance; clarified its reporting lines; and commenced the development of a new reconciliation tool to permit reconciliation of BNPP’s gross and net positions with the gross and net positions of NYMEX.
April 16, 2012